KUCHING: The recent stronger US dollar currency against the ringgit is expected to reflect positively on the nation’s rubber gloves industry as most of the sales are for the export market.
Over the past few weeks, the US dollar has appreciated by seven per cent to RM3.19 per dollar compared with a low of RM2.99 per dollar earlier in the year, translating to between five per cent and 15 per cent earnings accretion for glove makers taking advantage of the currency appreciation.
According to Kenanga Investment Bank Bhd’s research arm (Kenanga Research) the current favourable movements in latex prices and currency exchange rates if sustainable would augur well for industry players boostings net profits between 11 per cent and 27 per cent.
The research firm predicted that the price of latex would ease and stabilise at a lower price from the peak earlier this year as rubber players acknowlegded there were no shortages in the natural rubber latex with ample supplies coming from additional plantations in neighbouring countries like Cambodia and South Vietnam.
“Over the past two months, there was a downtrend in latex prices, but since the price peaked during the wintering season (around February to April 2012), it has currently fallen 12 per cent from its highs,” said an analyst from Kenanga Research.
The research house expected the prices to stabilise at RM7 per kilogramme (kg) and reckoned that the price would be monitored and supported by Thailand from falling further despite the sufficient supply.
Based on its analysis that assuming the latex price was at RM7 per kg and should the price of latex ease further by 25 sen, most rubber glove players could still see a boost in their earnings by between 11 per cent and 27 per cent depending on the size of their exposure.
“The continuing downtrend of the latex price will be a boon to glove manufacturers, particularly those with significant exposure to the production of natural latex gloves,” it stated.
However, it noted that Hartalega Holdings Bhd (Hartalega) would not see much impact to its earnings given its substantial exposure to the nitrile glove segment.
However Top Glove Corporation Bhd (Top Glove), Supermax Corporation Bhd (Supermax) and Kossan Rubber Industries Bhd (Kossan) could all see trading opportunities as the currency appreciation and latex price stability scenario would present trading interest on glove counters which had the most exposure to natural latex glove production.
While the other players in the nitrile glove segment like Adventa Bhd (Adventa) would also see some trading interest.
Kenanga Research maintained pegged target price of RM3.74 per share for Top Glove, RM2.06 per share for Supermax, RM3.64 per share for Kossan, RM3.12 per share for Hartalega and RM1.41 per share for Adventa.
Meanwhile, the research house observed that the overall demand growth for gloves still remained healthy, allowing glove makers to continue being price makers and passing on any cost increases to customers.
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